The Texas Supreme Court Has Spoken: Mortgage Servicers May Rewind and Restart the Statute of Limitations Clock Within the Same Letter

Last week, the Texas Supreme Court answered the Fifth Circuit’s certified question as to whether simultaneous rescission and reacceleration can reset the limitations period under Texas Law by holding that “a rescission that complies with the statute [Tex. Civil Practice and Remedies Code Section 16.038] resets limitations even if it is combined with a notice of reacceleration.” Moore v. Wells Fargo Bank, N.A., No. 23-0525, 2024 Tex. LEXIS 156, at *2 (Feb. 23, 2024).

Four-Year Statute of Limitations

In Texas, there is a four-year limitations period, which begins to run the day after the cause of action accrues for judicial foreclosures and non-judicial foreclosures under a power of sale in a mortgage or deed of trust. See Tex. Civ. Prac. & Rem. Code § 16.035(a), (b); see Tex. Civ. Prac. & Rem. Code § 16.035(d)(real property lien and power of sale become void on expiration of limitations period).

The accrual date is usually the maturity date of the loan, but when the loan documents include an acceleration clause, the statute of limitations on the foreclosure accrues at the time of acceleration. See Tex. Civ. Prac. & Rem. Code § 16.035(e); see also Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566 (Tex. 2001).

To exercise the contractual option to accelerate, the debtor must be sent a clear and unequivocal notice of intent to accelerate and a notice of acceleration. EMC Mortg. Corp. v. Window Box Ass'n, Inc., 264 S.W.3d 331, 335 (Tex. Ct. App. 2008). Once these are sent, the four-year clock starts to run. Id.

Rescissions of Acceleration

While the limitations clock is running, circumstances often change, i.e. loss mitigation is explored, or loan servicers transfer. To prevent a bar to foreclosure from raising during these delays, lienholders may elect to stop and reset the clock.

In June 2015, Texas Civil Practice and Remedies Code §16.038 became effective, which codified a lender’s right to rescind acceleration via unilateral written correspondence.

Under this law, if before the limitations period expires, the lienholder, the servicer of the debt, or an attorney representing the lienholder sends written notice of rescission or waiver of acceleration to each debtor who, according to the records of the lienholder or the servicer of the debt, is obligated to pay the debt by first class or certified mail then the acceleration is deemed rescinded and waived and the note, obligation, or series of notes or obligations shall be governed by Section 16.035 as if no acceleration had occurred. See Tex. Civ. Prac. & Rem. Code § 16.038.

Section 16.038(d) goes on to state, “[a] notice served under this section does not affect a lienholder’s right to accelerate the maturity date of the debt in the future, nor does it waive past defaults.”

The Moore Case

In 2004, the Moores executed a note secured by a deed of trust on their property. The Moores defaulted on their loan, and in October 2015, they were sent a notice of intent to accelerate, followed in February 2016 by a written notice that the loan had been accelerated.

The Moores sued the servicer and mortgagee in August 2020 in state court, requesting a declaratory judgment that the limitations period had run four years after the first acceleration in February 2016. The servicer and mortgagee removed the case to the Southern District of Texas Houston Division and moved for summary judgment, arguing effective rescission of acceleration under Tex. Civ. Prac. & Rem. Code § 16.038. The district court granted summary judgment, and the Moores appealed to the United States Court of Appeals for the Fifth Circuit.

The Fifth Circuit certified to the Texas Supreme Court the following questions:

1. May a lender simultaneously rescind a prior acceleration and re-accelerate a loan under Tex. Civ. Prac. & Rem. Code § 16.038?

2. If a lender cannot simultaneously rescind a prior acceleration and re-accelerate a loan, does such an attempt void only the re-acceleration or both the re-acceleration and the rescission?

The Texas Supreme Court answered the first question “yes” and therefore did not reach the second question.

Waiver of Rescission Does Not Affect Future Acceleration

Following the February 2016 notice of intent to accelerate, in a letter dated October 6, 2016, the mortgage servicer sent the Moores a “Notice of Acceleration of Maturity,” which stated the mortgage servicer was rescinding the prior acceleration and re-accelerating the loan as follows:

The Servicer is authorized to represent the Mortgagee by virtue of a servicing agreement with the Mortgagee (“Servicing Agreement”). Pursuant to the Servicing Agreement and Texas Property Code §51.0025, the Servicer is authorized to collect the debt and to administer any resulting foreclosure of the property securing the above-referenced loan.

The Servicer also represents the Beneficiary named in the Deed of Trust referenced above. The Servicer hereby rescinds all prior acceleration notices. The rescission of prior acceleration notices does not act as a waiver of any rights, nor does the rescission(s) suspend the current rights or claims of Mortgagee, its successor, or assigns. Mortgagee reserves the right to accelerate in this notice or in a separate notice and may continue to collect the debt owed by Borrower.

You have previously been advised by letter dated 10/01/2015, of certain defaults under the Note or Deed of Trust and informed of the intent to accelerate the maturity date of the Note if defaults therein were not cured within the specified time period. Because of defaults in complying with the terms and provisions of the Note and Deed of Trust, notice is hereby given that the present legal holder of the Note HAS ACCELERATED THE MATURITY DATE OF THE NOTE. As a result of such acceleration, the entire unpaid principal balance of the Note and all accrued interest and all other sums lawfully owing on the Note or under the Deed of Trust are now due and payable and demand is hereby made for the immediate payment in full of all such sums. As of 10/11/2016, the total amount due is $312,023.02.

As the Texas Supreme Court notes in its opinion, similar notices rescinding and accelerating while also updating both the amount the Moores owed in total and the amount the Moores could pay to cure their default and reinstate the loan were sent in November 2016, January 2017, and March 2017.

The final “Notice of Acceleration,” dated March 5, 2019 included an additional statement that, “Any acceleration of the Note made prior to sending this Notice is hereby rescinded in accordance with the Texas Practice and Remedies Code §16.038.”

The question effectively posed to the Texas Supreme Court was whether a §16.038 rescission notice was void if in addition to notifying the debtor of a rescission or waiver of acceleration, the same notice also included a reacceleration of the debt.

The Texas Supreme Court’s answer focused on Tex. Civ. Prac. & Rem. Code § 16.038(d) as it found:

The statute’s express provision that a rescission “does not affect a lienholder’s right to accelerate the maturity date of the debt in the future” does not create a waiting period between rescission and reacceleration of specific duration. It is the very nature of rescission to remove the earlier acceleration, paving the way for a new one to follow, whether in the same letter or by separate notice.

See Moore, 2024 Tex. LEXIS 156, at *8 (emphasis added). The Court reasoned any policy arguments made against simultaneous rescission and reacceleration do not “justify departing from the text of the statute” because this reset does not harm the borrower as its only effect is to place the borrower back into the original position under the terms of the loan agreement. Id. “The borrowers remain in their home despite their default and have a further opportunity to cure that default upon notice of the reacceleration.” Id.

What’s Next—Cautionary Note on Restarting the Clock

While the Texas Supreme Court held this single letter notice will not impact the effectiveness of the recission under Tex. Civ. Prac. & Rem. Code § 16.038 specifically noted that compliance with requirements for proper re-acceleration was not at issue in this case.

The Court points out that this opinion does not conflict with Wilmington Trust v. Rob, 891 F.3d 174, 177 (5^th Cir. 2018), which “suggests that a new acceleration of a loan requires a new notice of a lender’s intent to accelerate the loan—in addition to the notice of acceleration itself—to be effective.”

This means if using a single letter, lenders, servicers, and attorneys should keep in mind the requirements for proper notice of intent to accelerate since the validity of proper acceleration is “a determination [that] may be fact specific, as in the case of a lien with an express waiver of notice. See Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893–94 (Tex. 1991) (permitting the right to notice to be surrendered by a specific, separate waiver).